Alva's 'David' battles 'Goliath'
from here to D.C. … and wins!
Battle over $19,000 goes to U.S. Supreme Court
04/09/11
By Helen Barrett
Woods County Assessor Monica Schmidt accepted the biblical role
of David against the giant Goliath, members of the oil and gas
industry. Like the bible story, Alva's David won. This battle began
on the plains of Woods County, Oklahoma, instead of the hill
country of Old Testament Judah. After 10 long, hard-fought years,
it ended in the United States Supreme Court.
In the Beginning In the 1990s, Texaco sued the state of Oklahoma
over their being centrally assessed by the Oklahoma Tax
Commission (OTC) at a rate twice that available to the county
assessors. Later, OTC informed Woods County that oil and gas
companies owned gas in storage that had not been reported.
“Overnight, property values dropped in half,” Schmidt said. “The
schools were affected. It was really devastating. We had no
training or expertise in this area.”
“It became apparent to us that a lot of these companies weren't
being honest with us,” Schmidt said. “They were not turning in all
the property they should have, and some of the property they did
report was way undervalued.”
At this point, Schmidt and other assessors felt the need to hire a
consulting company. Woods County, along with all the local school
districts agreed to share the cost of hiring Visual Lease Services
(VLS), a company from Holdenville with established credentials in
similar cases now involving approximately 40 counties.
“What they did was come in and physically drive every inch of this
county – every road and every cow path. They were looking for
every well site. They would GPS that well site, every meter, every
road crossing, every pumping station then put the information in
their sophisticated computer system and connect the dots,”
Schmidt said. “That's how we discovered all this omitted property
that wasn't being turned in.”
Over the last 10 years, the VLS efforts resulted in the addition of
58 companies to the tax rolls that had never been assessed
before. “That was $127.8 million dollars of property that had
escaped taxation,” Schmidt said. “That amounts to about $1.33
million we weren't collecting in taxes.” VLS continues to find
companies that are either not reporting their assets or
undervaluing them, Schmidt said. She credits VLS and their
specialized expertise for finding all of the unreported property.
“It's not been an easy task,” Schmidt said. “It's resulted in a lot of
lawsuits, and I'm lucky to say – tapping the wooden podium with
her knuckles – we've won every single one.”
The Battle Threat Panhandle Eastern Pipe Line Company created
one of the Woods County underground natural gas storage areas,
the West Hopeton facility, out of natural underground caverns in
the late 1970s. From its opening, PEPL stored gas for other
companies for transportation to eastern states during the cold
winter months.
Since the Tax Commission told them that gas in storage was
taxable, Ms. Schmidt a.k.a. David, armed with figures provided by
VLS, sent a bill to the facility's owner. The facility owner (PEPL),
not wanting to fork over the entire taxable amount out of their
profits, told the assessor's office they did not own the gas, and
agreed to present a list of all their customers, their contracts and
how much gas each company owned in the facility on January 1.
In 1968 the Oklahoma Legislature passed a law stating specifically
that gas in storage was taxable. The law did not specifically
include the word “underground” as the state's assessors
interpreted it.
'Goliath' disagreed.
Not only did he disagree, the collective 'he' filed a protest of their
evaluation, represented by Oklahoma City gas and oil attorney Bill
Elias.
“They claimed the state had passed an unconstitutional law,”
Schmidt said referring specifically to Missouri Gas Energy (MGE).
First came an informal hearing at which the assessor rejected
Elias' arguments. Next came protests before the Woods County
Equalization Board.
Goliath Roars At the equalization board hearings, Elias vehemently
argued it was impossible to tell which molecules of gas belonged
to which company since they were co-mingled in the storage
facility.
This argument prompted the familiar – and somewhat humorous –
question of “Whose gas is it?”
Occasionally, angry company representatives walked out of the
hearings refusing to shake hands with either the assessor or the
board members.
Battle Lines Drawn Unable to convince the Woods County
Equalization Board that they shouldn't be taxed, MGE continued
protesting their liability by citing the Freeport Exemption, claiming
not all of the gas in storage (which they alleged couldn‟t be
proven as belonging to them in the first place) came from within
Oklahoma's borders, therefore the Federal Interstate Commerce
Clause controlled their tax status.
Elias, sometimes visibly angry, presented several arguments for
his clients at repeated hearings – first, that they should be totally
exempt: zero taxes with no room for negotiation. When that
failed, they added other arguments which eventually challenged
not only Oklahoma Statutes but the U.S. Constitution's control
over interstate transportation.
Since Woods County's assessment was smaller than other
counties fighting similar battles, 'Goliath' chose to challenge
'David' – not on hills in Israel separated by meadows, but in the
oak paneled courtrooms at facing tables before the District Judge.
“They actually picked this one Woods County case (to challenge),”
Schmidt said. “I think it was because it was one of the smallest
values of all the cases, and they thought nobody would fight it.”
Believing the law was on the assessor's side, 'David' accepted the
challenge.
Schmidt, along with officials of Grant and Beckham counties
agreed to fight. “It was too big a risk,” Schmidt said. “We had to
go through with it. We had nothing to lose.”
The local District Attorneys Ray Don Jackson and Hollis Thorp
realized they lacked adequate knowledge or resources needed to
battle the complex issues involving federal constitutional law. The
three counties along with the involved school districts agreed to
hire Attorney Mart Tisdal, from Clinton.
“That proved to be the best decision the group made, Schmidt
said. “We projected it would take four to five years to settle. We
never dreamed that 10 years later we would still be dealing with
this.”
'Goliath'' offered the option of receiving no taxes – losing all that
value and that tax base – not just on that one company, but all
the companies in the facility for the three years in question and all
future years.
Launching the First Stone From the beginning, Schmidt made sure
to document everything connected to the disputed cases.
“We had every 'I' dotted and every 'T' crossed,” she said. “We had
everything in a row, all the spreadsheets, everything.”
With her trusted 'slingshot' (Tisdal) by her side, they entered the
Woods County District Court with confidence. Depositions were
taken in several courts.
“I even had to fly to out of state with my lawyer to face a
representative,” she said. “There was a lot of uneasiness, a lot of
stress.”
At the Woods County District Court, the issues were divided into
two separate cases. At this level, they won all of the issues except
one – the question involving Interstate Commerce and the U.S.
Constitution.
Judge Linder ruled against the county on that one issue,
explaining that the Interstate Commerce Clause of the U.S.
Constitution needed to be decided by a higher court ultimately
forcing the county to appeal.
Schmidt a.k.a. David pulled out another stone, and sent the case
sailing to the Oklahoma Supreme Court. Several years passed
before the Oklahoma Court decided to put the case on the fast
track which meant skipping several appellate levels.
The Oklahoma Supreme Court ruled 8-1 that MGE did own the gas
and taxing that gas did not violate the Interstate Commerce
clause of the U.S. Constitution, and that the assessed value was
very reasonable.
“When we started assessing, the value of natural gas stood at
$1.98. By this time, it was over $10 or $11 dollars,” Schmidt said,
“So it was really hard for them to argue the gas was over valued
at this time.”
Schmidt and her partners waited for MGE's next move. MGE
appealed and five months later in March 2009 the Appeals Court
denied their case. Elias shot back by filing an appeal directly to
the U.S. Supreme Court.
“The reason they could appeal directly to the U.S. Supreme Court
instead of going through all the regional courts was because it
dealt with one issue – the Interstate Commerce clause.
During all this time, 'David' discovered a secondary battle
brewing. Oil and gas lobbyists pressed the Oklahoma Legislature
to exempt all underground storage from taxation.
About three days before the bill faced its final vote, language
appeared in the bill exempting all oil and gas related items in all
77 counties. Schools, the Oklahoma County Assessors'
Association, county government officials and nearly every entity
involved in receiving revenues from ad valorem taxes descended
on the Legislature in full force to defeat the bill.
In the meantime, 'Goliath' and his host of 'Philistines' started
rumors accusing the counties of hiring VLS on a contingency fee.
“They said VLS was working for a percentage of what they found,
which was absolutely false,” Schmidt said. “Counties can only sign
contracts for „X‟ amount of dollars on an annual basis.”
That ugly rumor still rears its head occasionally among legislators,
she said.
Final Showdown Schmidt received official notification that
“Missouri Gas Energy vs. Monica Schmidt, Woods County
Assessor, September 3, 2009” had been filed with the U.S.
Supreme Court. This battle seemed to be getting personal.
“The U.S. Supreme Court receives approximately 10,000 filings a
year, but it only accepts about 100,” Schmidt said.
During the 10-year period, Kansas, Texas and Arkansas offered
assistance to the local cause because they were fighting similar
issues in their states.
“National gas associations that I'd never heard of joined their side
and began filing their briefs,” Schmidt said. “I compared it to a
David and Goliath situation. We didn't know what we were up
against.”
The word came that the U.S. Supreme Court had already rejected
about 7,500 cases.
“Ours was never rejected or accepted, it was set aside,” Schmidt
said. “It was sent to the Solicitor General for an opinion.”
The Solicitor General, a lawyer who looks at cases in behalf of the
entire country, studies the issue to see how it would affect the
public, Schmidt said. MGE argued this decision would affect 42
states.
“We were getting a little deeper in how far it could go,” Schmidt
said.
The Solicitor General at that time happened to be Elena Kagan,
now Supreme Court Justice Kagan following her recent
appointment by President Obama.
“On January 25, 2010, six lawyers including Kagan and a lawyer
for the Federal Energy Regulatory Commission (FERC)
recommended to the Supreme Court that this case be rejected,”
Schmidt said. “With FERC in our favor, we felt that we had a very
good shot.”
This recommendation immediately caused 'Goliath' to file yet
another argument to which 'David' and company had to file a
response. Since only Supreme Court Approved attorneys may
argue before the high court, MGE hired a Washington, D.C.
attorney to represent them. They hired Harriet Miers, former
White House Counsel during the Bush Administration, and an
unsuccessful nominee by President Bush to the Supreme Court.
The Oklahoma contingency held off on hiring a D.C. attorney,
choosing instead to file for a petition to allow Tisdal to argue their
case before the Court.
“We were able to get our lawyer, Mart Tisdal, admitted to argue
before the Supreme Court,” Schmidt said. “For him that was
probably the highest honor of his career. We were proud of that
fact.”
Once the Solicitor General made her decision, she would then act
as 'David's' lawyer for free – representing Schmidt on behalf of
the entire United States of America.
On January 26, 2010, Schmidt received the Solicitor General's
recommendation that the petition be denied.
Jubilation reigned in the Woods County Courthouse, the local
school administrations' offices as well as at the VLS office.
March 3, 2010 the Supreme Court denied MGE's petition. They
immediately appealed for a rehearing, then on April 22, 2010 the
Supreme Court denied their rehearing for a petition.
Attorneys for both sides agreed this ruling was the final play,
closing 41 cases.
On August 9, Woods County Treasurer David Manning was allowed
to release the $1.3 million held in escrow to the schools and the
county.
Schmidt received notification on April 4, 2011, that the final
release was back in the Woods County District Court to be signed
Monday.
'Goliath' finally fell with a thud. $19,000...? “By the way,” Schmidt
said, “back in the 1998, 1999, 2000 cases (being protested), their
liability was a mere sum of $19,000! They never thought we
would fight it. We were fighting over hundreds of thousands of
dollars (in future revenues).”
The settlement allowed Beckham County to recover approximately
$3.5 million, and almost $5 million in Grant County. Not all of
Grant County's issues have been resolved at this time.
“We had the maps of the pipelines to show all of this was in our
county so all of it was ours,” Schmidt said.
Not all of the paperwork has been signed on its way back through
the courts, but those signatures could come at any moment.
Clearly, the elegant, tall, thin and tenacious 'David' a.k.a. Woods
County Assessor Monica Schmidt, again prevailed over the
modern day 'Goliath' disguised as Missouri Gas Energy.
That revenue stream for local schools will remain in place, thanks
to the U.S. Supreme Court.